by Ryan Ong, Director, International Business Policy
National Association of Manufacturers

Testifying yesterday morning in a three-hour hearing (see full hearing here) in front of the House Ways & Means Committee, U.S. Trade Representative Robert Lighthizer answered a wide range of questions about the administration’s approach, and current negotiations, with China.  In his formal remarks, Amb. Lighthizer reiterated that progress is being made during active negotiations, but tempered expectations of a short-term deal, stressing the “considerable work” that remains both before and after anything is signed. Member questions from both Republicans and Democrats indicated broad support for robust, enforceable outcomes from these negotiations, as opposed to a weaker deal focused primarily on product purchases, with “enforceable” emerging as perhaps the top overall theme. (As an illustration of this, Ranking Member Kevin Brady (R-TX) and Trade Subcommittee Ranking Member Vern Buchanan (R-FL) sent a letter to Chairman Richard Neal (D-MA) on the eve of the hearing calling for a “durable and enforceable negotiated solution.”)

Key takeaways:

• Lighthizer’s remarks appeared to temper views – fueled in part by recent Presidential tweets – that a quick, small deal was imminent, stating that “much still needs to be done both before an agreement is reached” and that “the issues on the table are too serious to be resolved with promises of additional purchases,” but need “new rules.”  Lighthizer did state, however, that this round of talks, if successful, would result in a signing followed by a “long process” of USTR working with Congress to ensure that China lives up to its commitment and works with the United States to address other problems that arise.
• In terms of specific areas of concern, Lighthizer listed “strong enforcement measures” as his top overall priority – and enforcement was indeed a critical theme in remarks throughout the hearing.  Following that, Lighthizer listed (in order):
  • Forced technology transfer, with efforts to address this “at every level of government”
  • Intellectual property protection, which by itself will be extensive (as Lighthizer indicated that this part alone will be 27 or 28 pages) and cover areas such as criminal enforcement, deterrent-level penalties, and neutral arbitration.
  • “Large industrial policy subsidies,” a likely reference both to problematic industrial policies such as Made in China 2025 as well as subsidies or other supports to local businesses
  • A catch-all category of trade and unfair practices in areas such as agriculture and services.
• In response to various questions about areas of progress, Lighthizer expressed seeming confidence in some areas (ranging from agriculture market access to biotech approvals to currency), but repeatedly stated that it was “too early to predict the outcome” of talks, and that “nothing is agreed to until everything is agreed to.”
• Lighthizer confirmed that USTR was working on a formal Federal Register Notice to formally delay the tariff hike on List 3 products beyond March 2 – a necessary process step to actualize President Trump’s February 24 tweet announcing such a delay. Responding to a question from Rep. Jackie Walorski (R-IN), Lighthizer said that the notice “is being worked on right now” and is in process “in the next day or two.”
• Lighthizer discussed in greater detail plans to monitor Chinese adherence to its commitments and hammer out additional issues with his counterparts. In response to a question from Rep. Linda Sanchez (D-CA), he stated that the two sides would meet on a fixed schedule (monthly at the director level, quarterly at the vice-minister level, and semi-annually for Lighthizer and Vice Premier Liu) to raise and resolve issues flagged by companies anonymously.  If those issues are not resolved, USTR “would expect to act proportionally but unilaterally to insist on enforcement” – a potential reference to tariffs or other enforcement tools.
• Lighthizer did not, however, give any indication of active work towards an exclusion process for List 3 products, despite language included in the joint explanatory statement surrounding the recently passed-and-signed appropriations measure. Again responding to Rep. Walorski, Lighthizer stated that such a process is “something we’re looking at,” but that USTR’s view has been not to have an exclusion process for List 3 at 10 percent, arguing that Chinese currency devaluation has made this impact minimal. Rep. Walorski also mentioned separate conversations about resource constraints as another USTR-cited factor.